Are lawyers numerate?
Well, are they? And do they understand business accounts? Some are, and some do – in fact, some are quite brilliant mathematicians – but many don’t, and I will share with you a few examples.
First, we have lawyers who have confidence in the accounts filed at Companies House, and when a valuation is needed, in divorce, for example, they take a printout of the micro accounts from Companies House, send them to me, and expect me to be able to value the company. This happened so frequently that I felt obliged to write a blog about it, which I called “Companies House Searches Are USELESS”. And I append a note: “This blog is retained on page one for its enduring relevance.” So, next time a junior lawyer in the family department sends me such accounts, I have my explanations ready.
Then I turn to Kemp & Kemp The Quantum of Damages, the “bible” for personal injury practitioners. This was a lifetime work for David Kemp QC, who, touchingly, included the second Kemp in the title. This was his wife, a very promising young barrister who died tragically young. I wrote for David a chapter on how to quantify loss of earnings for the self-employed and family company director, and David was really pleased with it. It was in print for many years, but then David died, and the publishers Sweet & Maxwell appointed a new editorial board, who re-wrote all of volume one so that my work was lost. I wrote to them and said how important it was for users of the work to understand business accounts, for example, a barrister who was cross-examining an accountant expert witness.
The reply I got was that accountants understand accounts, and if interpretation was needed, they could always instruct an accountant. I found that unconvincing. And my chapter is still available to you if you drop me a line. It’s in very simple language, but there is a lot to learn.
Third, I turn to crime, and particularly to drug dealing. As readers will know, those convicted of drug dealing (and some other serious offences) are at risk of having their assets seized by the Crown under the Proceeds of Crime Act. It is said that doing jail time is just the price one pays for profiting from drugs, but that losing one’s wealth really hurts these people.
Perhaps so, but the court has to decide on a fair figure, both for the benefit of the crime and the available amount for confiscation.
I have just finished a case where the convict pleaded guilty to drug dealing in a minor way and is now serving time, but his main activity was running a motor repair business and MOT testing station. The prosecution’s expert went through his bank accounts, totalled up some £353,000 going through the bank, and concluded both that this was all benefit from drug dealing (it wasn’t; there was even ample evidence of vehicles bought and sold) and that this same sum was the amount available for seizure.
That was even more unrealistic; how could money which had come into the business and gone out again still be sitting in a bank waiting for the authorities to collect it? Naïve!
My expert report showed that there was £6,336.36 sitting in bank accounts, so that was the available amount. A few days before trial, the prosecution agreed that the available amount was £6,336 – and thirty-six pennies. What a waste of time.
If you are still reading, that’s good because we now come to the most interesting bit.
Some months ago, I was an expert in a criminal trial at Swansea Crown Court. Andrew Ling had been accused of stealing some £165,000 from his own company. After 11 years in the army doing bomb disposal, Andy had set up a business producing a very advanced form of battery; he had even sold 3,000 units to Sainsbury’s for their home delivery vehicles.
He fell in with some business angels, who borrowed £700,000 from the Welsh Development Bank, and they regularised the management of the company. Andy admits that his record-keeping was poor. The other directors – the angels – accused him of fiddling his expenses and taking money from the company without authority. He was investigated, and he was sacked for gross misconduct.
After he left, the others didn’t have his technical knowledge, and the business failed.
Andy was charged with theft and spent five years on remand.
As the trial came up, the prosecution’s expert was an AAT (Association of Accounting Technicians), a very low-scale qualification for those working in the back room of accountants’ offices. She added up all the amounts withdrawn but ignored all the amounts paid in: introduced from private funds, expenses not claimed, and so on. All of this was recorded in the director’s loan account.
At the end of the fourth day of the trial in Swansea, I gave evidence and had to explain how a director’s loan account works. And I gained the distinct impression that no one else in that courtroom – judge, both counsel, the jury – had any idea. I was the last witness. The jury retired and emerged a few minutes later with a verdict of Not Guilty. Andy’s five years of purgatory was over.
There was a long article about this recently in The Times Business Section. I am mentioned only once, as follows:
Ling believes an expert witness commissioned by the defence helped convince the jury of his innocence. Chris Makin, a forensic accountant, supported Ling’s claims that he had only withdrawn money owed to him. On one calculation, far from stealing from the business, he was in fact still owed £20,000. “Chris was the first person in five years who believed me,” Ling says.
This is what makes my job so rewarding, but what a pity the lawyers working on the case didn’t know about directors’ loan accounts years ago!
